Difference Between Centralization And Decentralization

Difference Between Centralization And Decentralization

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Rashmi
Rashmi Karan
Manager - Content
Updated on Feb 9, 2024 10:32 IST

When managing a business, one of the most important decisions a company owner has to make is choosing the right organizational structure. Two of the most commonly used structures are decentralized and centralized, each with advantages and disadvantages. Centralization is a hierarchical and top-down system, while decentralization is a more democratic and bottom-up system. The main difference between centralization and decentralization is that Centralization involves consolidating decision-making authority at the top of an organization, while decentralization distributes decision-making power to various levels or units within the organization, impacting the efficiency of decision-making processes and overall control. In this article, we will cover the difference between centralization and decentralization.

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What is Centralization?

Centralization is a method of managing power in which a single authority makes and executes decisions. This may be a person, group, or institution. Power is exercised and managed vertically since the rest of the people, departments, or institutions are subordinate to the central authority.

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What is Decentralization?

It is a way of managing power by sharing it with others, groups of people, instances, or departments. In this way, those involved are responsible for the decisions they make.

In this sense, decentralization helps to decongest central power, distributing the hierarchy, workload, and responsibilities. A central power must be accountable with decentralization, but the people or departments involved have greater autonomy to generate solutions.

Difference Between Centralization And Decentralization

Listed are some of the main differences between centralization and decentralization –

Centralization Decentralization
A single authority holds power. Power is concentrated in local authorities and collectivities.
Unilateral decisions. The procedures of each instance are independent.
Vertical hierarchy Each department can make its own decisions.
Authorization from the central power is required to execute actions. There may be different levels of decentralization, so authorization varies.
Lots of bureaucratic processes are involved. Minimal bureaucratic processes.
If the central government fails, the entire administrative structure tends to fail. The model can fail if there is no preparation from local authorities and collectivities.
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Characteristics of Centralization

Centralization has three specific characteristics:

  • High concentration of power in a few people (sometimes in just one), who is the one who makes the decisions and, in many cases, executes them.
  • When the central power is not in charge of executing the guidelines, it is responsible for ordering their execution by subordinate persons or entities.
  • The decisions made at lower levels must go through the approval of the central power since they do not have autonomy.

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Characteristics of Decentralization

  • The central authority transfers responsibilities to subordinate instances.
  • These instances have independent procedures which do not require the approval of the central entity.
  • Decisions are participatory.
  • The central power protects the decisions, but they do not depend directly on it.
  • Decentralization can have various levels of management: from a discreet decongestion of power to 100% autonomous dependencies to the central authority.

Advantages of Centralization

Whether from a political-administrative or organizational point of view, centralization can provide some advantages in decision-making:

  • As there is a single authority, communication is much more efficient and fluid since it derives from a single source.
  • Concentrating so many responsibilities on one person or group, they must be highly trained academically, intellectually, and emotionally to take on the challenges this implies.
  • Duplication of tasks (several people or departments working on the same solution) is avoided since the roles are defined.
  • It establishes the idea of ​​strong leadership, which can be inspiring for the rest of the organization.

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Advantages of Decentralization

Decentralization can have significant advantages for the instances involved in resource efficiency. Some of these are:

  • Decentralization makes decision-making more efficient since it does not require a long chain of command or authorization from the central power.
  • Decentralization implies higher specialization and training for those responsible.
  • The solutions require less bureaucracy by not requiring the approval of a central power.
  • Resources are managed according to the needs of each entity.
  • There is a higher level of interaction and sense of responsibility among the members of the institution or department to whom power has been delegated.

Disadvantages of Centralization

Concentrating essential decisions on a small group of people can generate negative consequences that hinder the processes.

  • The larger the organization, the greater the distance between the central power and the subordinate instances. Administrative centralization can generate more bureaucracy.
  • As power is in the hands of a tiny group, the functioning of other instances is usually neglected, generating administrative problems and frustration among subordinates.
  • High staff turnover can be encouraged since it is assumed that only the work done by the leadership group matters, and the efforts of subordinates are undervalued.
  • If the group in charge fails or is inefficient, the entire organisation collapses.

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Disadvantages of Decentralization

A poorly executed decentralization process can have severe consequences in the organizations in which it is carried out, for example:

  • Without effective communication, each instance can work on the exact solutions in parallel, duplicating tasks.
  • Suppose the responsibilities are diluted, and there is no accompaniment from the central power. In that case, the objectives are not achieved, or each instance generates particular results not aligned with the general objectives.
  • The lack of adequate training can generate failures in the department’s operation.

We hope this article helped you to understand the difference between centralization and decentralization.

FAQs

Which approach provides more autonomy to lower-level entities: centralization or decentralization?

Decentralization offers more autonomy to lower-level entities since decision-making authority is distributed, allowing them to make decisions independently within their allocated responsibilities.

Does centralization or decentralization promote faster decision-making?

Centralization often facilitates faster decision-making since authority is concentrated in a single entity, enabling quick responses. However, decentralization can also promote faster decision-making at lower levels, reducing the need for higher-level approvals.

Which approach promotes better coordination: centralization or decentralization?

Centralization can promote better coordination as decisions are made by a central authority. However, decentralization can also enhance coordination by allowing local entities to make decisions that align with their specific needs and context.

Can an organization be entirely centralized or decentralized?

In practice, most organizations exhibit elements of both centralization and decentralization. The degree of centralization or decentralization can vary based on the organization's size, structure, industry, and objectives.

Are centralization and decentralization mutually exclusive?

No, centralization and decentralization are not mutually exclusive. Organizations can employ a combination of both approaches in different areas or functions, depending on the requirements and goals of each specific aspect.

About the Author
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Rashmi Karan
Manager - Content

Rashmi is a postgraduate in Biotechnology with a flair for research-oriented work and has an experience of over 13 years in content creation and social media handling. She has a diversified writing portfolio and aim... Read Full Bio